Will 'Deglobalization' Be Next Big Trend, As Countries Pull Back On Overseas Trade And Investment?

One fateful question for 2013 is this: What happens to globalization? For decades, growing volumes of cross-border trade and money flows have fueled strong economic growth. But something remarkable is happening; trade and money flows are slowing and, in some cases, declining.

David Smick, the editor of The International Economy magazine, calls the retreat "deglobalization." What's unclear is whether this heralds prolonged economic stagnation and rising nationalism or, optimistically, makes the world economy more stable and politically acceptable.

To Americans, some aspects of deglobalization will seem delicious. Take manufacturing. Globalization has sucked factory jobs from the U.S.

Now, the tide may be turning. Just recently, Apple announced a $100 million investment to return some Mac computer production home. Though tiny, the decision reflects a trend.

General Electric's sprawling Appliance Park in Louisville, Ky., once symbolized America's post-World War II manufacturing prowess, with employment peaking at 23,000 in 1973. Since then, jobs have shifted abroad or succumbed to automation.

But now GE is moving production of water heaters, refrigerators and other appliances back to Appliance Park from China and Mexico. Year-end employment is reckoned at 3,600, up 90% from a year earlier, writes Charles Fishman in December's Atlantic.

Nor is GE alone. Otis is moving some elevator output from Mexico to South Carolina. Wham-O is shifting Frisbee molding from China to California.

The Boston Consulting Group (BCG) predicts a manufacturing revival. China's labor cost advantage has eroded, it argues. In 2000, Chinese factory wages averaged 52 cents an hour; but annual double-digit percentage increases will bring that to $6 an hour in high-skilled industries by 2015.

Although wages of U.S. production workers average $19 an hour, BCG argues other non-wage factors favor the U.S. American workers are more productive; automation has cut labor costs, and cheap natural gas further lowers costs; finally, higher oil prices have boosted freight rates for imports.

As important, it says, the U.S. will maintain significant cost advantages over other developed-country manufacturers: 15% over France and Germany; 21% over Japan; and 8% over Great Britain. The U.S. will be a more attractive production platform. Imports will weaken; exports will strengthen. BCG predicts between 2.5 million and 5 million new factory jobs by 2020. (For perspective: 5.7 million manufacturing jobs disappeared from 2000 to 2010.)

Because the U.S. is the world's largest importer, this shift would dampen trade. Similarly, cross-border money flows ("capital flows") have abated.

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